Beijing Lending Shift May Force Banks to Raise Capital

Removal of Floor on Loan Rates Is Seen Hitting Smaller Lenders Hardest

BEIJING—China's banks will need up to $100 billion in new funding over the next two years following Beijing's move to shake up lending, according to an analysis by a research firm, and that could spur banks to tap investors for capital even amid growing worries over the strength of their balance sheets.

China's central bank on Saturday removed a government floor on the interest rates banks can charge their clients for credit, allowing financial institutions to price loans at whatever level they want. Authorities hope the...